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The good news and the bad news about the Russian economy’s movement toward becoming a market economy are both abundant; however, the Russian economy can still — 16 years after the Soviet Union’s demise — be appropriately characterized as transitional. It is the second largest of the economies considered to be transitional (China is the largest), but its position on the broad spectrum of transitional economies is not entirely clear, and neither are the pace and direction of its movement. The authors shed light on ambiguities surrounding Russia’s status as a transitional economy by attempting to answer four key questions that relate to issues of interest to government decisionmakers about what Russia’s economic growth can be attributed to and how transitional changes in the Russian economy have affected Russia’s defense spending, defense industry, arms exports, and economic transactions with several of its trading partners.

Table of Contents

Chapter One

Introduction

Chapter Two

The Macroeconomy

Chapter Three

Oil and Natural Gas — Prices, Production, and Exports

Chapter Four

Markets and Reform

Chapter Five

International Transactions

Chapter Six

Russian Military Spending

Chapter Seven

Conclusions and Implications

Appendix

Research conducted by

The research described in this report was prepared for the Office of the Secretary of Defense (OSD). The research was conducted in the RAND National Defense Research Institute, a federally funded research and development center sponsored by the OSD, the Joint Staff, the Unified Combatant Commands, the Department of the Navy, the Marine Corps, the defense agencies, and the defense Intelligence Community.

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